Arbitration: BG Group Decision: U.S. Supreme Court Holds that Failure to Fulfill Preconditions to Arbitration Are Generally for Arbitrators, Not Courts, to Decide and Court Review is Deferential

Sullivan & Cromwell LLP - March 7, 2014

Arbitration clauses commonly include preconditions to commencing arbitration, such as time periods during which the parties are to attempt to resolve the dispute through negotiation or mediation.  The U.S. Supreme Court on March 5 decided 7-2 that the arbitrators in investment treaty arbitrations, not courts, are generally to decide whether such preconditions have been satisfied or may be skipped, and that courts may review such decisions only under a deferential standard of review.  Rejecting the position advanced by the United States as an amicus curiae, the Court held that arbitration clauses in investment treaties normally are to be interpreted under the same rules that apply to contracts, including various presumptions about the parties’ intent that the Court has developed in contract cases.  BG Group plc v. Republic of Argentina, No. 12-138, 572 U.S. ___ (March 5, 2014).

The BG Group decision limits the grounds on which arbitration awards in general, and investment treaty awards in particular, are subject to review in U.S. courts.  But the significance of the decision is broader than the context in which it was raised, because it collected and clarified the Court’s prior case law on the allocation of responsibility between court and arbitrator with respect to a wide variety of arbitral preconditions.